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Edited Transcript of CLIR earnings conference call or presentation 8-May-19 9:00pm GMT

Q1 2019 ClearSign Combustion Corp Earnings Call

Seattle Jan 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Clearsign Technologies Corp earnings conference call or presentation Wednesday, May 8, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian G. Fike

ClearSign Technologies Corporation - Interim CFO, Treasurer & Secretary

* Colin James Deller

ClearSign Technologies Corporation - CEO & President

* Robert T. Hoffman

ClearSign Technologies Corporation - Chairman

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Conference Call Participants

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* Robert John Kecseg

Las Colinas Capital Management, Llc - Managing Partner, Chief Compliance Officer & CIO

* Matthew Selinger

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Presentation

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Operator [1]

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Good afternoon, and welcome to the ClearSign Combustion First Quarter 2019 Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Matthew Selinger, Investor Relations. Please go ahead.

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Matthew Selinger, [2]

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Thank you, operator, and welcome, everyone, to ClearSign Combustion Corporation First Quarter 2019 Results Conference Call. During this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement, which includes remarks about the company's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call include, but are not limited to, whether field testing and sales of ClearSign products will be successfully completed, whether ClearSign will be successful in expanding the market for its products and other risks that are described in ClearSign's public periodic filings with the SEC, including the discussion in the Risk Factors section of the 2018 Annual Report on the Form 10-K. Investors or potential investors should read these risks. ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

On the call today with me are Rob Hoffman, ClearSign's Chairman of the Board; Jim Deller, ClearSign's Chief Executive Officer; and Brian Fike, ClearSign's Chief Financial Officer. So with that, I would now like to turn the call over to Brian Fike. Brian, please go ahead.

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Brian G. Fike, ClearSign Technologies Corporation - Interim CFO, Treasurer & Secretary [3]

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Thank you, Matthew, and thank you to everyone for joining us today. Before I turn the call over to Rob, I'd like to review our preliminary results of operations for the first quarter, which ended March 31 of 2019.

The net loss for the quarter was $2.3 million compared to $2.3 million in the same period of 2018. Shares outstanding at March 31, 2019, were 26,699,761. Our cash and investment resources were about $13.7 million at the end of the first quarter of 2019. It is important to note that we have sufficient working capital available as of today to carry us well into 2020, even assuming no revenues or changes in expenditures.

And with that, I would like to turn the call over to the Chairman of our Board, Rob Hoffman. Please go ahead, Rob.

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [4]

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Thanks, Brian. Before getting into the meat of the call, I wanted to take this opportunity to comment a little on how much progress the company has made in the mere 3 months since Jim Deller arrived.

When I introduced Jim on the last call, I remarked on how his career experiences in the combustion industry checked every box from operational field engineer to sales to sales support, all the way through running one of the U.S.' most well-respected burner brands. But of course those accolades were based only on the extensive interviews and references we had gone through in a whopping 3 days on the job.

With the NFL draft having taken place a few weeks ago, I think there is an interesting analogy between searching for a CEO and selecting a first round draft choice. The stakes are high. And as the Arizona Cardinals will attest, do-overs are very expensive, and uncertainty remains. The question's not what they did in college, the issue is whether they can translate that to even better performance in the NFL.

In the case of Jim Deller and ClearSign, we have already seen tremendous evidence that he will succeed with his bigger role of CEO.

While younger investors might not grasp the analogy, Jim is the Bart Starr as opposed to the Joe Namath of the combustion industry. As investors get to know Jim, they will discover that he will never be like Broadway Joe and "guarantee victory", nor will he ever be the flashiest guy in an investor conference. Conversely, like Bart Starr, he will be the understated field general getting the most out of his team while, at the same time, being the most important cog in driving that team to victory and making the clutch decisions when it is most important.

I don't want to preempt Jim's commentary today, but suffice it to say that our draft pick has already demonstrated that he is game-ready. And I am excited for him to share his vision for ClearSign's success with you today. So with that, I will turn the call over to ClearSign's Chief Executive Officer, Jim Deller.

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [5]

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Very well. Thank you. I clearly have to get on to Google. I was born in 1968 in England. Who is this Bart Starr and this Broadway Joe guy?

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [6]

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Well, I guess, that's what Google was invented for. Maybe you won't be the only one on the call that has to look those up.

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [7]

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I guess it's part of my education here. Anyway, good afternoon, everybody. As Rob pointed out, on the last call, I had literally just joined the company by a couple of days.

To review, I said that my immediate task upon joining the company was to assess the status of the technology internally as well as with our current and prospective customers. I mentioned that the traditional burner business is very competitive due to high barriers to entry in terms of infrastructure requirements and the inherent very careful nature of the business.

I also mentioned that our business model variations, which may be different from the traditional burner supply business, that should be explored and that can serve ClearSign's objective of accelerating commercialization.

In my remarks here, I want to discuss what I believe our technology is today, how it fits into the market and our path to capture our share of that market.

Since that last call in February, we have been focusing on optimizing our technology, the goal of rapidly leading our technology towards all commercialization in addition to our progress towards arranging supply partnerships, which I will talk about later, beyond modifying the structure of the company from being predominantly focused on R&D to a structure ready to support our anticipated commercial operations.

We have also cut expenditures where this can be done without hindering us on our path to commercializing ClearSign technology. I and the rest of the ClearSign team are very aware of the expectations you, as shareholders, have for results to share your disappointment in the perceived lack of progress, especially with the knowledge of the developments being made of the potential for ClearSign in the future. We recognize that revenue and profit are the true measurements of success. And with that sole objective in mind, we are moving quickly to bringing products to market at a fully commercialized manner. This is necessary for full scale commercial operations.

Stepping back, I would like to give you an update on our activities over the past 3 months. This will cover developments in our technology, business strategy and our activities in China, and we'll then give an update on specific opportunities we are pursuing. Hopefully, at the end of this, you will have a better understanding of how we expect ClearSign's business to develop going forwards.

Over the previous years, ClearSign has developed and demonstrated great technology over a wide range of applications, and this is what brought me here today. In fact, I believe that ClearSign can truly be a game-changer in the vast field of industrial combustion. But we have to walk before we can run. So in the past 3 months, we have transitioned our operational focus to the commercialization of this technology, primarily identifying and addressing what needs to be changed or improved to make ClearSign technology more readily adoptable by our customers. This included the technical configuration of the equipment, the resources needed to offer a full commercial product line and the manner in which our technology is delivered to our customers.

Let me take this opportunity to highlight some changes we have made to the configuration of the Duplex technology and the reasons for them, and also how we are developing our channels into the market.

To bring key products to market, quickly, we have prioritized our efforts on the Duplex technology as applied to refinery heaters, particularly in the Plug & Play technology and the burners compliant to your boilers, which, when we look at the boiler opportunities, is by far the biggest and most readily addressable boiler market in ClearSign.

This decision was not only based on the size of the addressable markets but also on the value of the technology can provide to these customers, have the system that product designs will be, enabling standardization and the efficient scaling of our business; and most importantly, how quickly we can get a commercialized product to market.

Very significantly, these products not only provide value through their NOx minimization but also the increase in efficiency they deliver from results in fuel savings, CO2 emission savings and potentially increased productivity of whatever equipment they are installed into.

In the case of the Plug & Play technology, we believe that it will also enable the debottlenecking of production heaters, in which the throughput is limited by the [culvert] between the internal heater volume and the space requirements of the oversized flames from mainstream Ultra-Low NOx burners.

In summary, products based on these technologies provide strong value opportunities, not only through emissions control, but also, and potentially in the long term, more so to increase operational efficiency.

As part of the product optimization, we have made a fundamental change to the manner in which the Duplex technology transitions from ignition to normal operation. The original version of this technology operated in 3 stages, ignition of a pilot, the startup of a small flame to heat the downstream Duplex tile and, finally the transition of the combustion to the Duplex technology for more ongoing operation.

The new version of this technology eliminates the intermediary step and provides a Duplex solution from an operations and control perspective is the same as a conventional burner for both the Plug & Play technology and the fire-tube boiler configuration. The new version simplifies both the technology and its operation. And also, importantly, it eliminates the need for our customers to make modifications to their control systems and operating procedures in order to incorporate our Duplex technology into their equipment.

The new Plug & Play is truly plug and play, regarding not only heating modification, but also fuel gas piping, heater controls and the requirements of the operation staff.

Not inconsequentially, these modifications reduced and simplified the hardware incorporated into the technology, allowing for reduced manufacturing costs and increased profit.

The second change to be addressed regards the channel to market. This will likely vary in details due to the nature of the different burner appliance that the ClearSign technology is applied to. And as the discussions with potential supply partners are ongoing, it's not appropriate to get into details on this call, but we can at least give an outline and rationale of our approach at a high level.

During our recent customer visits, we received many comments expressing openness and support for our technology, but they've also expressed a great preference for procuring burner technology from a company with substantial customer support resources, fabrication and demonstration capabilities. When asked what they wanted to see to enable them to consider ClearSign as a solution in the future, we learned that while we, at ClearSign, are ready to undertake multiple large volume burner supply orders, our customers see our limited supply resources as a risk.

When one considers that a missed supply can have the consequence of delaying the restart of the refinery or at least delay or disrupt the operation, it is clear to establish a channel to market that our customers will trust is essential for ClearSign to achieve the mainstream growth we expect.

Along these same lines, it is normal in the burner supply industry that every single order to be specially configured to optimize the performance of the burner in accordance with the particular operating requirements of the customer and the process of heat with which it is to be installed. As part of the verification process, maybe all refinery and petrochemical burner orders require that first, as go burner to be demonstrated in a test furnace, set up to simulate the conditions of the destination heater prior to the manufacture. Clearly, for ClearSign to develop such a capability, will be very capital-intensive and counter to our asset-wide and expenditure-prudent business model.

This confirmation from our customers and our objective to scale up to full scale commercial operation quickly, there is clearly merit in supplying our technology in collaboration with other companies that already have the resources and infrastructure needed for mainstream sales and production.

We appreciate that this is not a new proposition for ClearSign, and licensing arrangements have been sought in the past with no success to-date. We believe our restructured approach today is fundamentally different and will be successful.

Our objectives are speed to market and the rapid development of a comprehensive range of products. While in the past, I believe the motivation was predominantly about cash upfront I have personally experienced from being on the other side of this table. From my perspective, it was hard to justify a large upfront fee without having an established product range and dependable sales funnel and, ultimately, confidence that there will be a good return on my former company's investment.

The approach we are taking today is driven by the need for the rapid development of the ClearSign business as well as for long-term growth.

Our modified approach traced the desire from an upfront licensing fee, which may never be possible or best could take several years, as this technology slowly gets better known and trusted with the means to bring our products to market quickly. This tactic requires our supply partners invest not in upfront cash, but in collaboratively developing a commercial product range with ClearSign technology at its core and collaborating in joint marketing and most likely to achieve the most rapid and comprehensive mainstream development possible and on an agreed time line.

In blunt terms, we've chosen to kickstart this business rather than hold out the limited channel to market for possible cash contribution sometime in the future.

Financially for ClearSign, we believe the earlier and increased sales achieved for such an approach will compare positively to a model requiring ClearSign development technology alone at a point in time to a potential license that will pay a worthwhile fee for licensing price. It provides a path to mainstream commercialization, which we can act on today, given the rapid optimization of our core technologies over the recent months.

Furthermore, and very importantly, we believe this provides the best value to our prospective licensee partners. We get to win best expertise and resources they already have rather than cash to develop and sell new groundbreaking and market-leading products will deliver clear value compared to the competition, a very appealing opportunity for them compared to extremely cutthroat competitive business of today's commercial industrial burner business.

We believe that this path forward is one that we can implement and benefit from in the coming months rather than years. Without disclosing details, I can confirm we do have expressed interest in developing these new start agreements for industry-leading equipment manufacturers. That means we have 4 more disclosure agreements in place to further collaborative discussions and visit dates set for due diligence visits to Seattle to witness the capabilities of our newly optimized technology.

As part of our ongoing strategy to commercialize our key technologies, we're also preparing our organizational structure for full-scale commercial operation. The development support our operations with our future supply partners and to promote our technology in the marketplace, we are delighted to announce the very noteworthy additions to the ClearSign team.

A renowned industry veteran and professional engineer, Jeff Lewallen, has joined us to lead our refining ethylene business. Jeff has worked in the combustion industry since 1992, originally with John Zink and since 2009 at Callidus. Jeff's our industry expert in process burner design and technical sales and, most recently, led the burner technical sales operation at Callidus. He also has a background in engineering, field service, burner design and burner testing. Jeff is based in our Tulsa office, where they will be spending significant time in Seattle in the short term.

Jeff's job quite simply is to take Plug & Play to what we believe is a groundbreaking technology to commercial success. He will direct the technical development of Plug & Play technology, handle the day-to-day finalization and ongoing management of our expected partnership agreements. And going forwards, grow our refining and ethylene business.

Jeff's ability is well known throughout the industry. And to have someone with a background like Jeff join us is a great complement for ClearSign. This is a key role for ClearSign, and we're excited to have Jeff with us.

Before we begin to talk about our activities in China, I want to give a quick update on a couple of key strategic opportunities that we are working on.

The first is our joint funded project for World Oil and the South Coast Air Quality Management District in Southern California. For anyone not familiar with this project, this is an installation of 5 Plug & Play burners co-funded by the South Coast Air Quality Management District to proactively validate for the industry that ClearSign offers a feasible and cost-effective means for the new NOx regulations to be met. At this time, we do have a purchase order from World Oil and expect concluding the purchase order from the South Coast Air Quality Management District imminently.

Just in this past week, we had our team visit the job to confirm installation details and other necessary information, and we have a formal project kickoff meeting scheduled for later this month. We look forward to the supply and successful demonstration of this equipment.

We also continue to work with ExxonMobil and are currently finalizing contractual terms to accompany their purchase order for the engineering portion, the first phase of supply of this demonstration installation in Texas. Although the revenue associated with engineering order is modest, it represents a very significant milestone for ClearSign. We anticipate issuing a formal announcement from the order when the engineering phase is finalized.

We're also pursuing other promising opportunities for our Plug & Play technology players and large Duplex installations, and we're very encouraged that the motivations of our customers to the [sheer our] technology are not only for exceptionally low NOx emissions they provide but also, in other cases, the ability of our technology to increase efficiency and productivity and operate entire firing chambers where traditional low NOx burners cannot function properly whether the. As stated earlier, this provides markets for ClearSign outside and beyond those driven solely by very progressive emissions legislation.

The next topic I would like to address is China. China has some of the most technologically challenging industrial combustion emissions requirements in the world. With the advantage of it being a very large market and one in which the government acts forcefully, creating a substantial opportunity for a business offering low emissions performance of ClearSign's technology. District heating is a very large industrial sector in China. To give a quantitative feel for this, there's an estimated 150,000 to 200,000 boilers in regions where NOx emissions are under tightening environmental regulations.

Within these districts, there are 2 types of boilers. Water-tube, in which an array of tubes are filled with the water that is being heated. These tubes form a volume into which the burners or burners fire. And the other is fire-tube boilers, which tend to be smaller and more standard in shape. In these, the burners fire into a large tube but is surrounded by a vessel filled with water for this to be heated.

To-date, our efforts are focused on the water tube boilers in the Chinese district heating plants. When ClearSign first entered the Chinese market, we did not have the optimized firetube boiler burner we have today. The decision was made to utilize the technology successfully applied to the Once Through Steam Generators for or OTSGs installed in California. These were considered to be sufficiently similar or the same technology to be used for this boiler application. With a similar horizontal firing configuration and a similar firing rate it was anticipated the transition for boiler application to an OTSG would be a relatively routine extrapolation on the designs already proven by ClearSign.

As anyone who has been following this application in the test, we have met challenges on the way that were not anticipated at the time we embarked on this project. These largely result from the increased combustion intensity within the interior volume of the boiler. In addition, the time to make technical iterations is greatly increased when the installation is halfway around the world. While we have not reached our ultimate goal, we have made good progress and have achieved firing rates of 2/3 of the target rate. In doing so have also generated a much better understanding of what needs to be done to complete the project.

Our progress is now on hiatus due to the end of the Chinese heating season. However, with the district's encouragement, we are continuing to develop this installation through the summer using computer modeling and other engineering tools and look forward to demonstrating full rates early this coming heating season.

When we look into the makeup of the Chinese heating districts, for every water tube boiler there are approximately 4 of the firetube boilers. Given that we now have an optimized firetube boiler technology, this provides a very large and attractive target market for ClearSign in China.

Lest anyone believes that our ongoing efforts in China have been in vain, it is to our ongoing support of the current water tube boiler installation that we maintain a solid relationship with the management of the heating district in Beijing and have received their encouragement for us to install demonstration ClearSign firetube boiler burners so that they can assess and confirm the performance of our technology before or during this coming season.

We anticipate a successful demonstration will open the door for significant ongoing sales.

I will be making a trip to China to visit our client and operating partners later this month. During this visit, we will be able to further review and assess the current situation and explore opportunities to potentially engage local productization and supply partners who could help provide a rapid scale-up of our business in China and also who can be channels to the wider Chinese heating industry along with other sectors of the Chinese boiler burner market.

With that, I'd like to bring Rob back on the floor for some additional comments. Rob?

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [8]

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Thanks, Jim.

Before wrapping up our prepared comments and moving into the Q&A, I'm going to take my Chairman hat off for a bit and put on my investor hat. One of the tenets of my investing philosophy has been to lean on others who are experts in their respective fields and essentially piggyback on their assessments. Some term this concept of investing by proxy. In the case of ClearSign, there are a number of proxy indicators that one can look towards. Perhaps the most recent one is the decision by Jim to join ClearSign and even more recently, for Jeff Lewallen to join us as well. Here we have 2 people who are basically trading the stability and comfort of working for Honeywell for the upside of working for ClearSign. They know the combustion business, they know the dearth of true innovation within the industry, so they recognize that game changing technology does not come along every day. Given their knowledge of the industry, they are confident enough in our future success to essentially bet their careers on it.

The next example is the South Coast Air Quality Management District that Jim referenced. The district has an engineering staff whose full-time focus is emissions control. Not only is the district putting its reputation behind ClearSign technology, but they're actually investing in an installation. In other words, they are literally putting their money where their mouth is, with the anticipation that a successful demonstration project will enable them to use a much larger stick to encourage ClearSign adoption within their operating geography.

Third, we have the Chinese heating district. Have we accomplished our goal there? Not yet. But the fact that not only are we being asked to continue our work on the water tube boiler but also expand our expertise into the larger firetube vertical, we believe is a strong vote of confidence in our technology can help satisfy a pressing issue within many of China's largest cities.

The final example we have is ExxonMobil. Ask anyone in the energy industry which company is the preeminent engineering leader and the consensus is always ExxonMobil. What we have to remember, however, is that XOM does not do anything hastily. Their reputation as well as their operational excellence depends on deep dive analysis.

My grandfather was a carpenter who always ascribed to the mantra, measure twice, cut once. In the case of ExxonMobil, I think they must have a mantra of measure 100 times, cut once. While all investors, including the SPV, are frustrated by the lack of revenue progress the company has achieved to-date, including with XOM, we cannot overestimate the importance of our achievement of the recent engineering contract we are close to finalizing. Said differently, ExxonMobil has been measuring 100 times over the course of the last number of months, and we believe now are getting close to being ready to cut.

I'm also a firm believer in understanding incentives when analyzing businesses. And incentives usually come down to basic human nature in the most basic -- in that most business decisions are driven by individual career risk and reward. Notice that I said risk as well as reward since for the most part, combustion industry professionals are much more focused on the risk part of the equation.

What is so gratifying about Jim's efforts to date is that he immediately honed in on this very important point in analyzing our technology, pursuing with supply agreements as well as organizing ClearSign management.

Taking them one at a time. Our technology is different. While in our mind since different is dramatically better, our customers should agree, no? But what Jim knows from his years of experience is that in order to convince customers of the positive attribute, you also have to focus on eliminating the differences wherever possible. By changing from a preheat burner setup to a more traditional pilot system, he has eliminated a major operational question mark on the part of customers. After all, the more customers have to change their operational methods, the more risk they will perceive and the less likely they will be to endorse change. So by removing perceived operational risks, we expect we can accelerate adoption.

License agreements versus supply agreements. Upfront investment versus collaborative development funded out of normal operating capital budget. The barriers to the former are substantial, including the issue of who. In other words, what level executive signs off and who in the organization, i.e., lower level executive, will have the career confidence to push it through to the top.

In the most impressive part of Jim's partnership strategy shift is given the lower risks on the part of our partners, we should be able to not only reach an agreement faster but also move customers faster from beta orders through to adoption orders.

Successful supply agreements also dramatically drop another perceived risk that Jim identified. Customers want the comfort of a manufacturing in service organization that ClearSign has no interest in duplicating. So by collaboratively developing our technology with partners who already have such capability and providing those partners with incentives that they can easily model, we create a win, win, win situation for the customer, the partner and, of course, ClearSign.

Lastly, with the addition of Jeff Lewallen to the team, Jim is also recognizing that our future supply partners will need a point person whose singular goal is to commercialize our technology through the eyes of what the customer wants and needs as well as what ClearSign provides and what the supply partner provides. While I have not yet had the pleasure of meeting Jeff yet, all indications are that he is the perfect man for the job.

When I introduced Jim to you on our February call, I asked for patience. I firmly believe that Jim has accomplished more in the past 3 months than any of us could have reasonably expected. And for those of you interested enough to listen to this call and continue to be shareholders, I firmly believe that your patience will be rewarded.

With that, operator, let's open up the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from [John Reynolds], Retail.

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Unidentified Analyst, [2]

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What is the road map of the company? Or how are you going to tell the investment community where you're going? We've been patient, small microcap companies like this need communication and effective communication with the investment community (inaudible) hardship. I'm getting a lot of [feedback here]. They are very frustrated, we haven't heard anything since the last quarterly call. And I really appreciate this update you just gave. And what does this do to compress the sales cycle and ultimately drive revenues for the company?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [3]

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There were several parts to that. Certainly, I appreciate your comments about communications. We've mentioned several things today which are going to be key milestones for ClearSign as we conclude them, we will be keeping up with press releases and it is absolutely my intention to keep our investor community informed.

I think the bigger question we can -- you know, to elaborate on the course -- I mean we're absolutely trying to compress the schedule to commercialization. The developments we've made here have been quite substantial in the technology. We are actively in conversations with our supply partners. These supply partners have a large range of test facilities, a very large and very experienced and capable staff and will be -- or we anticipate be very rapidly able to work with our team who know the Duplex technology to create an entire product range and to market that as they also have a wide network of sales channels and relationships with the customers and the heater manufacturers and in the case of the boilers, the boiler engineering companies who can connect the new technology to the ultra-low NOx needs of the marketplace.

So I really believe that we are on the fastest track to getting this product commercialized and to getting mainstream sales. As we said the difference is we're not going to do this as a small team. We're going to do this by partnering with a large team, bringing the critical parts that we have, but also recognizing and leveraging that the supply partners that we're looking to work with have some extensive and very necessary resources of their own and that we will do this together and not alone as just ClearSign.

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Unidentified Analyst, [4]

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So are you saying that you're going to do this through a value-added reseller channel, is that the strategy?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [5]

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No. We will be doing this in collaboration with a partner. And that collaboration will include the development of a product range within their facilities. But I really need to be clear here. We -- every agreement like this is the result of a negotiation. And obviously what is the outcome is also partly due to the input of the other party that we're working with. So I can't say with certainty exactly what all the details of this agreement will be. My intention is that we will truly find a win-win scenario because we need the supply partners to benefit greatly from this relationship as we do for ClearSign and as we do for the end users. And we have to find that win-win-win. When we do that, our supply partners will be motivated to develop the product range and to promote the sales and to seek opportunities to sell ClearSign technology and that is absolutely our desire. But I really believe to achieve that and our motivation and mentality going into these negotiations is that we need to find that right balance and make sure this truly is a very good deal for all parties involved.

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Unidentified Analyst, [6]

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Okay. So the second half of 2019, are you confident that you're going to have some of those win, win, wins in place and therefore some revenues to report to the shareholders?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [7]

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I know -- I don't have a perfect crystal ball. What I can tell you is that we have already discussed these type of arrangements with several key and global potential supply partners. They have expressed great interest. We've had ongoing communications to the point that we have signed NDAs in place to continue those discussions and we actually have dates confirmed for multiple partners to come to Seattle to do their own due diligence and to see the newly optimized technology really as their own vetting before getting down to the nitty-gritty and the final working out of details for these supply partnerships.

So we are well along the way to developing these relationships, and I can't give guarantees of what clients and customers will need -- need to take...

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Unidentified Analyst, [8]

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Understood. Just from being a long-term loyal shareholder, I just -- I think that we have earned the right to be communicated with in a more effective manner. This has been very, very discouraging as a shareholder where they cut communication. And Rob, I'll put it on you as well. You've been involved in the company long enough, this has been unacceptable. And that's -- I'm just going to leave it at that. So thank you.

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [9]

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Thank you.

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Operator [10]

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The next question comes from [Marshall Crow], Retail.

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Unidentified Analyst, [11]

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I'm a long time investor as well, although a small investor, but nevertheless I'm quite encouraged. Maybe I have a small short track record, so I don't know what to anticipate in terms of communication, but these conference calls have been -- this one, particularly, has been very encouraging.

The one question that's kind of haunted me that I've almost not wanted to ask because I was afraid of the answer was, is there ever a time when you're starting -- in the mechanics of the system when you're starting up -- starting from a cold boiler and warming it up and then transitioning into your Duplex piles, is there ever a moment where you got periods of instability, essentially where something could go wrong? Where something explodes is, I guess that's what I'm saying, wondering about?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [12]

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Okay. So first of all, even going back to the original technology, we're a very conservative company and we recognize the severity and the importance of control and maintaining stable combustion. The key and I think really to put your mind at ease, the changes that we have made over the last 3 months and that I described in the comments, where we simplified the operation of the technology from a 3-step to a 2-step process, we have eliminated any transition of what was the Duplex flame or the combustion from the initial primary preheat burner when that use to transition up to the Duplex head. That step has gone away. What we have now is an ignition/pilot system that provides a flame that is in exactly the same vicinity as the permanent flames. You would light this pilot burner or pilot device and then you can immediately turn on the main fuel gas, that flame will, as with a standard burner, light on the pilot and stabilize on the flame stabilizing device. The flame stabilizing device in our case happens to be this wonderful Duplex technology we have. But, in terms of the operation of the technology, it is now exactly the same as for a regular industrial burner.

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Unidentified Analyst, [13]

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All right, that's great to hear, very good. And a quick other question, so the tiles, they burn very hot, they last for a year? Or for 5 years? Or forever before they have to be replaced? Can you speak to that?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [14]

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Well, we don't have forever yet.

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [15]

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Nor do we want to.

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [16]

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Yes. We do -- we have had Duplex burners and these tiles in operation now for several years. We have had the opportunity to go back into that equipment and to see it. And we've had installations where it has been cycled also, cycled up and down almost on a daily basis over a period of longer than a year. And whilst I've not climbed in those units myself, the reports that we've had back is that the tiles are looking as new.

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Unidentified Analyst, [17]

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Is that right? Terrific.

And obviously they're made in the United States. And then how easy or difficult would it be to pirate the technology -- to pirate those tiles?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [18]

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So first of all, I -- as to your second part of the question, the -- I really don't want to get into the source of the material. We do have other special technology embedded into the burners that we're selling or the parts that we are providing. Also, the ClearSign and Duplex technology is very heavily covered by patent. So, certainly, in the combustion industry the -- we do recognize that the spare parts business is very fruitful. We are very cognizant of that. And as we arrange our agreements going forwards and design our equipments, we certainly are careful to recognize the value to ClearSign of the ongoing life cycle service down the road and make sure that we maintain what's due to us.

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Operator [19]

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(Operator Instructions) And I believe we may have a question from ClearSign HQ.

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Matthew Selinger, [20]

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This is Matthew Selinger. Does anyone here in the room -- by the way we had our annual general meeting so we do have investors live here with us. Does anyone here in the room have a question they'd like to ask? Feel free to step forward, if you don't mind.

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Unidentified Analyst, [21]

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Yes, Jim, can you give me some more color on China and the opportunity there?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [22]

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Certainly. Thank you. So China is a very interesting part of the world. The emissions requirements in China -- we've all seen the smog and reports of pollution in China. And the government, I know from my prior knowledge, and also reports since joining ClearSign, the government is taking that very seriously. And when the government acts in China, they don't really negotiate. They -- well, they pretty much tell the clients what they have to do. The relationships we have with the heating districts are very strong, it is beyond just handshakes and words. We have signed agreements with them. These agencies are quasi-government agencies and operates hundreds of thousands of boilers, many of them in the highly polluting regions where the NOx emissions are being greatly reduced. We see the China market as at least as big for us as United States market, it is extremely important. The opportunities for our newly optimized firetube technology there are huge. And one really nice thing with the firetube boiler is a very repeatable and consistent boiler. So as you finalize a product to get that certified, you can actually take those products and repeat them over and over again until all the boilers are of that same standard size. So it's a very, very rapidly scalable technology once it's approved.

So within China, with the channels to market that we expect to achieve through our relationships with the heating districts and this very repeatable product, which is -- has a very ratable and addressable market with a very large potential return for ClearSign.

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Operator [23]

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The next question comes from Robert Kecseg at Las Colinas Capital Management.

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Robert John Kecseg, Las Colinas Capital Management, Llc - Managing Partner, Chief Compliance Officer & CIO [24]

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Thank you, Jim, for giving us kind of a new light on what may be able to happen. As far as the efficacy of the product and the things that we heard about the low NOx and the low carbon monoxide emissions, I think it was originally in the steam generators, the OTSGs. We actually heard of some real data that was very low. Is there anything suspect there? Or is there other things that need to be changed to really accomplish those really low NOx, the low CO emissions?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [25]

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I mean think the technology does provide those very low NOx and very low CO emissions and we've -- so admittedly and back to the communications. We've not said a lot about the OTSGs over the last few months. We do maintain a very good relationship with them. But we have really focused on what we have seen as the big potential moneymakers for ClearSign in the Plug & Play burners where we really see the U.S. as a very strong market. And the firetube boiler burners, where there is a market in the U.S. but also very big potential in China, the goal is to get those products into those markets as quickly as possible. So we've -- we're certainly working on the OTSGs and aware of that. But to focus on something, you've got to apply your resources to get that done. And really the story with the OTSGs apart from the -- obviously the work we do being very dependent on our customers, they have not been priority #1 and 2 for ClearSign over the last few months as we've really pushed the firetube boiler burner and the Plug & Play burner for the refineries as our first priority. So hopefully that explains, we're not -- we are working on those products. We do have plans for them. We've just prioritized where we think we can get more money more quickly first.

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Robert John Kecseg, Las Colinas Capital Management, Llc - Managing Partner, Chief Compliance Officer & CIO [26]

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Okay. So I wanted to ask, on the Plug & Play, has the company ever really installed one? We were under the understanding that they were -- that something was installed at Dallas in Texas. So has there ever been a unit installed in the process heater for a refinery?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [27]

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Yes. Yes.

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Robert John Kecseg, Las Colinas Capital Management, Llc - Managing Partner, Chief Compliance Officer & CIO [28]

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Okay. And then on -- and then the last thing was it seems like there -- in the U.S. there's a big problem with regulators and that type of thing where the industry doesn't want to try something new unless they're kind of forced to by the regulators. What -- can you kind of give us your feeling about that, what's the situation?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [29]

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Well, we have to recognize the industry that our customers in, they have -- they are extremely careful. Obviously very prudent looking out for a profit. I think -- our goal is to work in the environment we're in, we can't change the political relationship between the regulators and our customers. Our task is to find the regions where the industry being smart, realized what regulations are coming down the road and are future-proofing their operations. And as we discussed, also bringing to light the increased efficiency. And in the case of the Plug & Play, the ability of the burners to work in more closer confines than standard burners and to recognize that there are markets outside of those driven purely by the emissions regulations. And in our own work, to make sure that we express that value and work with customers with those needs also for the benefit of ClearSign. So I don't think there's room to honestly criticize the customers or the regulators. Our job is to just recognize the landscape we're working in and work out how to position ourselves best within that.

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Robert John Kecseg, Las Colinas Capital Management, Llc - Managing Partner, Chief Compliance Officer & CIO [30]

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Right. And do you anticipate staying in Seattle? Or is it going to be more economical to be in the South or some other area?

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [31]

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I'm probably a bit more pragmatic. First of all, we are in Seattle. The company's based here. Obviously, we're invested with quite a large infrastructure built up in the buildings here in Seattle. Of course, we also have to recognize that the -- at least the vast majority of the top quality global burner suppliers are based in Tulsa, Oklahoma, where we also have an office. And not coincidentally, just -- Jeff Lewallen, who has recently joined us, is based in Tulsa and will remain in Tulsa in anticipation that we will have closer relationships going forwards with companies in Tulsa. And if there is a bifurcated business, that the -- at least the commercial arm of the business will likely have a bigger presence in Tulsa. Because, at the end of the day, you have to be close to your partners and you have to be close to your customers.

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Operator [32]

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I believe we may have a question at ClearSign HQ.

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Matthew Selinger, [33]

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Would you mind going forward? Would you mind stating your name, if you don't mind? Thank you.

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Unidentified Shareholder, [34]

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I am [Stace Williams]. I consider myself a loyal shareholder, even in and the face of the last 15 months and 80% decline in the share price, but I've heard some really encouraging comments from the conference call today. The area I want to ask you about is, during the past 3 or 4 conference calls, the shareholders have kind of had this Exxon discussions carrot dangled in front of them. And I understand Mr. Deller's comments that now we anticipate some modest revenue from an engineering phase order. Could you shed some light on maybe what's the horizon for an implementation order with Exxon? And we may be -- I may be getting ahead of ourselves with that question, but I think -- and you addressed some revenue from an engineering phase order and how that would be different from an implementation order. What's the horizon of an implementation order, specifically with Exxon and the status of that? I don't know if that goes to Mr. Deller or Mr. Hoffman.

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [35]

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So put it -- so to look at the -- at this project, because our project with Exxon and have -- as Robert described, Exxon is a very diligent and very highly engineering-capable oil company, they have recognized the value of ClearSign technology from a very long time ago, and over the years, have invested in research here in our lab. They have collected data. They have had a series of meetings. I have recently been part of those. And I actually spoke with Exxon before coming here by the way as well. And they continue to support ClearSign. I know that we actually had conversations with them earlier this week we had 2 of our team down at local [NPI] meeting. But the order we have in-house, this is a modest order in terms of money. But for Exxon to actually place an order for the engineering of a supply -- or for the -- a part of a supply agreement is the start of a supply agreement. This is quite a normal way of buying burners in the industry, they will place an order for engineering, you get the engineering done and then basically it's you release the order for the second phase. So this is a purchase of ClearSign burners to be installed in a heater down in Texas for demonstration and proving by Exxon. So the significance of this order is absolutely huge for ClearSign. We are expecting to start on this. We are working through the final details of a purchase order as we speak. So this is not something that's out in the future, this is something today. And we -- in terms of communications, we very much look forward to announcing the completion of receiving the order and this is underway. We expect to be working on this in the next month and through the rest of the year. So this is going to be starting very, very soon. This isn't something that is out sometime in the future.

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [36]

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This is Rob Hoffman. I think it's interesting to kind of juxtapose where we see Exxon and one of the question previous was where do we stand with the regulators. And that's what's so, I think, interesting or fascinating, not sure if I'm even getting the right word. Exxon is not reacting to environmental regulations today. When the regulations in Texas, while they are moving in the direction that will benefit us, they are not on the same timeline as, let's say, the ones in California. And -- but Exxon is forward-thinking. And so they -- and as we've mentioned, they're very engineering-focused. But they are not -- before the SPV put money in, I did some due diligence on Exxon, not with specificity of Duplex but with the process. And what I discovered is that when they went to the safety committee, that was a big deal. Exxon doesn't -- they look at lots of things and they don't bring it all to the safety committee. So the fact that this technology went to the safety committee was a big deal.

And then this engineering study. Again, from a revenue perspective, it's not significant. But it's an indication that Exxon is very interested in making those next steps. And as Jim said, we are at the -- we're beholden to their timeline in terms of when we actually put our -- the burners at their plant now. But we know what heater it's going in, we -- they -- we do the engineering work. So they -- the other thing to remember about Exxon is they don't do these things to solve one heater's -- this is not trying to solve a heater problem that -- some of our installations to date have been, some of our early customers have been well, they got a heater that's giving them problems, let's try this out because nothing else will work. Exxon is looking at it differently. Let's see how these things work because if they work the way we think they can, there's a lot more behind it. That's kind of where I look at it.

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Matthew Selinger, [37]

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Do we have any other questions live here? Sir, would you mind coming forward by chance?

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Unidentified Shareholder, [38]

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Just want to say my first question or statement.

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Matthew Selinger, [39]

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Okay. Would you mind identifying yourself please and...

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Unidentified Shareholder, [40]

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My name is [Elvi Santi].

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Matthew Selinger, [41]

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Thank you.

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Unidentified Shareholder, [42]

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And my question was -- is because this company is involved with multiple change of leadership. And I know investment is -- you have to take it by heart or grow it. And I'm sure everybody would like to have their growth and value of their investment growth. So my question was -- is where do you see this company be from now 12 months? Or from now -- 12 months from now?

The second one is what was your least successful investment and your ideal exit strategy.

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [43]

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So, the first one is pretty easy to answer. I mean the -- I can't give definite timelines. But the -- but what we expect to see it is leveraging the resources and the marketplace. We have the technology. We do not see our future as a ClearSign manufacturing plant. We're not going to be another burner manufacturer. It is to find partners around the world in different technologies, in different verticals however best suits the breakup of the markets and ClearSign technologies, and then with those partners to grow with them, the develop marketing with them, to give them groundbreaking technology to enable them to sell a burner with a ClearSign core that is better than anything else on the market and that can meet the emissions requirements or the heater efficiency requirements going forwards.

But it truly is a collaborative model, where we're looking to find partners that want to work with us and that together we can develop a very, very good business. We are part of that partnership. I think if ClearSign tries to do this themselves or ourselves, we will get there, but it will be much slower and it will be much smaller. And the goal here is to get very big and as quickly as possible, and that truly is a collaborative model for us.

I honestly can't answer your second 2 questions. I mean the investments that have gone, wrong I've had some that have gone broke, that's bad. Right? No one likes that. That's probably the worst that anything can...

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Robert T. Hoffman, ClearSign Technologies Corporation - Chairman [44]

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I'll actually -- but I'll give you one of mine because I've been in professional investment 25 years and I'll juxtapose why this was a difficult one versus what I see here.

I invested in a dental laser company, great technology, the client would supposedly be more comfortable.

What I realized though is that the -- to convince the marketplace, you basically had to convince every single dentist one by one.

So the selling process was -- there was very little operating leverage. Gross margin on the product was very good. But in terms of ramping the market, it was very challenging.

So you contrast that with the ClearSign business model is, and I say this kind of tongue-in-cheek is, we have to sell to Exxon once. We don't have to every Exxon service station around the world. Obviously, we're not doing anything to Exxon service stations. But that's my point is -- is we have a hockey stick operating future. When things -- when it's -- when adoption occurs, more adoption will occur. And you don't need to actually sell to every single -- you don't have to educate every dentist on the advantage of laser dentistry. They will already know, and that's the other highlight of what an Exxon brings to us, is that everybody knows how diligent Exxon is. So if and when they start to adopt, which we anticipate, that will hopefully open more floodgates.

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Operator [45]

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This concludes our question-and-answer session. I would like to turn the conference back over to Jim Deller for closing remarks.

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Colin James Deller, ClearSign Technologies Corporation - CEO & President [46]

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Thank you, operator. Well, thank you all. Are there any more questions? Okay.

So if there are no further questions, I would like to thank our investors for participating on this call and for their continued support of ClearSign. Thank you all.

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Operator [47]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.